National Research Corp (NRC) 2008 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the National Research Corporation third quarter 2008 conference call. During the presentation all participants will be in a listen-only mode. (Operator Instructions). As a reminder this conference is being recorded Wednesday, November 5, 2008. I would now like to turn the conference over to Michael Hays, Chief Executive Officer with National Research Corporation.

Welcome, everyone, to National Research Corporation's third quarter 2008 conference call. My name is Mike Hays, the Company's CEO, and joining me on the call today is Pat Beans, our Chief Financial Officer. Before we commence our remarks, I would ask Pat to review conditions related any forward-looking statements that may be made as part of today's call.

This conference call includes forward-looking statements related to the Company that involve risk and uncertainties that could cause actual results or outcomes to differ materially from those currently anticipated. These forward-looking statements are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. For further information about the facts that could affect the Company's future results, please see the Company's filings with the Securities and Exchange Commission. With that I'll turn it back to you, Mike.

To kick off the call today, let me say we had a good quarter. Both revenue and earnings came in ahead of where they may have been without the increased contribution year-over-year from NRC Picker and The Governance Institute.

Moving from our annual HealthCare Market Guide product, which is delivered in the third quarter, to an ever increasing number of Market Guide clients upgrading to the Ticker product, has driven a proportion of our Market Guide revenue to become ratably recognized over the twelve-month subscription period. I am very happy to see that we can make such a positive change to the Market Guide product and still have a good third quarter.

Before I add color to this success and dive into a few additional topics, let me turn the call back to Pat to review the quarterly and year-to-date financials.

Thanks Mike. For the three months ended September 30, 2008, the Company's revenues were $13.5 million compared to $14 million in the same period in 2007. For the nine months ended September 30, 2008 Company achieved revenues of $38.8 million compared to $38.1 million during the same period in 2007.

For the three months period ended September 30, 2008, net income for the Company was $2 million, or $0.29 per diluted share. Net income was 15% revenue, which is our model. For the nine months ended September 30, 2008 net income for the Company was $5.5 million compared to $5.7 million in the prior year, both resulting in $0.81 per diluted share.

The HealthCare Market Guide new subscription based Ticker product ended the quarter with a year-to-date increase of $2.1 million of new deferred revenue. Had these sales been from the traditional HealthCare Market Guide product, it would have resulted in an additional $1.3 million of net income based on an effective tax rate of 38% or an additional $0.18 per diluted share, putting diluted EPS at $0.99 for the nine months ended September 30, 2008.

During the third quarter 2008, direct expenses as a percentage of revenue were 49% compared to 43 in 2007. As we stated in the last call in August, we divided our sales force into two groups, one focusing on bringing in new clients and the second focusing exclusively on existing current clients. Starting in July 2008 the associated expense for the sales group focusing exclusively on current clients are included in the direct expense instead of SG&A.

In addition we had the cost of HealthCare Market Guide non-annual non-Ticker deliverable for the last time in this quarter.

During the third quarter 2008, the SG&A costs were down in total dollars to $3.1 million compared to $3.2 million during the same period in 2007. The SG&A expense for the quarters were 2 -- 23% of revenue, the same in 2007. For the nine-month period ended September 30, 2008, SG&A were 26% of revenue, also the same in 2007.

Depreciation and amortization were 5% of revenue during the third quarter and 2008, compared to 5% in the same quarter 2007.

Cash flows from operations for the third quarter was $4 million compared to $2.9 million in the same period in 2007. Cash flows operations for the nine months ended September 30, 2008 was $11 million compared to $10.4 million in the same period of 2007.

During the first nine months of 2008, the Company's notes payable decreased by $2.9 million. During the same time the Company repurchased 293,686 shares of Treasury stock for $7.4 million at an average cost of $25.36 per share. Cash and short-term investments as of September 30, 2008 were $677,000.

During the month of October, the Company completely paid off the term loan from the May 2006 acquisition of TGI, and currently has no outstanding bank debt. I will now turn the call back over to Mike for additional discussions.

Let me touch on just a few points before we open the call for your questions. Net new sales for the third quarter were $2.7 million, HealthCare Market Guide contributed materially to this new sales number. Yet both The Governance Institute and NRC Picker added several new clients, as well as upselling additional products and services to current clients.

Our sales performance for subscription based products increased 67% in the third quarter compared to a year ago. Year-to-date subscription based products sales have soared 170%. Given market demand for this portfolio of high margin products, we have and will continue to increase the size of the sales team for both HealthCare Market Guide and The Governance Institute.

Our patient experience measurement and improvement products are becoming even more important to the most senior management levels of healthcare organizations, given the new public spotlight. As we forecasted publicly, reporting of HCAP scores have increased resources, focused against improving hospitals' performance. As value based purchasing becomes tied to improving the patient experience, we believe this trend will continue if not accelerate.

On the economic front, we have seen no real changes on the number of days to decisions on new contracts, nor have we seen any material pushback to embedded price increases. As well, clients remain interested in broadening the relationship by purchasing more products and services from our company. In addition, renewal rates and accounts receivable are tracking to historical trends.

The one economic driving change that we are seeing is that it seems easier to find great talent, at least in Lincoln.

On our last call I reviewed our Payors Solution division and the declining enrollment in Medicare Advantage. I'm happy to report today the Payors Solution revenue has stabilized and the unit is probable.

Our new product development efforts remain the top priority for the organization, and we have moved forward in enlarging the group of associates dedicated to that effort. Several major new products across most all business units are in the final phase of market testing. And we're looking forward to launching those that test out the best.

Operator, I would now like to open the call to questions please.

(Operator Instructions). Kristina Blaschek, William Blair.

Good morning. (multiple speakers) Nice quarter. I wanted to start off first -- the question regarding the net new contracts, the $2.7 million during the quarter. Can you provide a breakout? (technical difficulty) I know last quarter you provided a breakout of net new sales based on Picker sales or HealthCare Market Guide, or subscription base.

HealthCare Market Guide net new sales for the quarter were -- let me get the exact number for you here -- 998,000. TGI, which would be the other subscription based product, is around 570,000 with the remainder in NRC Picker.

Great. And so for the HealthCare Market Guide, that 998,000, that's all the new products, correct?

Correct (multiple speakers) there may have been some of the classic annual deliverable in there.

Sure. That makes sense. On the subscription based, do you have a dollar amount of what the new contracts for subscription based products was?

I don't have that added together. If you have another question, go ahead and ask it and I'll get the number and before I end the call I'll provide that.

Okay great, and then on -- moving along to the expense front, so should we look at -- for example, the uptick in direct expenses, understand that it has a lot to do with the repositioning of the sales force. Is that something in the 49% range that I should be looking at going forward?

This is Pat. No, it should be -- when (inaudible) -- going forward, combining the two groups together, we should have a similar percentage. With the HealthCare Market Guide, the balance of the -- which is the last time we will have an annual subscription cost going through there, was also part of that 49%.

So is it fair to say maybe coming back down towards a 45% level?

Yes, that would probably be correct.

Okay great. And then I think that's all I have for right now. I will have to go through some of my notes and I'll get back in the queue if there's anything else.

The one answer to your other question on the mix between subscription based and non-subscription based products on net new sales is roughly 55% subscription based, 45% non-subscription based.

Okay, thank you very much.

(Operator Instructions). We seem to have no questions at this moment. I'll turn the call back to you.

Just in closing, let me thank you for your time today. We're moving forward on several fronts and we're trying to increase the growth rate as we do that. As always Pat and I will look forward to keeping you abreast of that progress, and look forward to talking to you next earnings call. Thank you.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.